Financial Literacy Unit 7 : Various Types of Loans

Vocabulary flashcards related to various types of loans, including short-term, medium-term, long-term loans, and microfinance.

Loan

A liability, which can be for a short or long term, advanced by a bank and repayable after a specified period.

Term Loans

Long-term loans raised for a duration of 3 to 10 years from financial institutions, carrying a floating rate of interest and pre-determined maturity period.

Short-Term Loans

Borrowings that businesses undertake for a short period to address their immediate monetary needs, often through bank overdrafts.

Floating Interest Rate

An interest rate that changes according to the changing market conditions.

London Interbank Offered Rate (LIBOR)

An estimated interest rate calculated by taking the average of the present interest rate charged by main well-known banks in London, serving as a benchmark for multiple financial instruments.

Mumbai Interbank Offer Rate (MIBOR)

An interest rate at which banks borrow unsecured loans from each other, used as a reference rate for corporate debentures and other financial agreements.

Money Market Instruments

Short-term financing instruments with a maturity of less than one year, aiming to increase a business’s financial liquidity.

Commercial Paper

A money market instrument used by companies to address short-term working capital requirements; it is unsecured and typically used by large companies.

Certificate of Deposits (CDs)

Negotiable term deposits accepted by commercial banks, freely negotiable and issued in high amounts.

Credit Rating Agencies (CRAs)

Agencies that rate and evaluate the creditworthiness of debt securities and their issuers, providing credit risk ratings based on qualitative and quantitative analyses.

Payday Loans

Loans where the borrowing amount is decided based on the borrower's income and repaid upon the receipt of the next income or paycheck, often carrying a high interest rate.

Medium Term Loans

Loans with a repayment period of two to five years, suitable for small business owners who want to expand their business.

Long-Term Loan

A loan that has a repayment period of more than three years, with examples including home loans, car loans, and education loans.

Micro Finance

The financial services provided to low-income groups or individuals who do not have access to traditional financial services, including savings accounts and micro insurance.

Accrued Interest

The interest amount that has been incurred on a financial obligation like a loan but has not been paid out yet.

Collateral

An asset that a borrower provides to the lending institution as a guarantee of repayment.

Credit Score

A prediction of the borrower’s credit behavior, indicating the probability that the borrower will repay a loan on time.

Line of Credit

A flexible loan offered by financial institutions, comprising a fixed amount of money that can be accessed as needed.

MCLR

The minimum lending rate below which banks are not allowed to lend.

Origination Fees

A fee charged by a lender for processing a loan application.